Graph of the week: Sweden is risking a monetary accident

The Swedish economy is one of the strongest growers in Europe at the moment. Nevertheless, this week the Swedish Riksbank decided to cut its policy rate further to -0.50%. The question of whether or not the Riksbank is going too far is becoming more and more relevant.

Sweden has made a decent recovery from the crisis. Economic activity is 8.6% above its pre-crisis level and is growing at close to 4% at the moment. Moreover, leading indicators suggest that growth of 6% is a possibility in the near future. On top of that, the Swedish housing market is booming. House prices have doubled in the past 10 years, are currently rising at a pace of more than 10% a year, and that pace is still increasing.

As a central bank injects monetary stimulus, there is always a risk that the stimulus feeds bubbles, among other things in housing markets. Of all the countries where central banks have been pushing the monetary needle, Sweden is probably closest to such a monetary accident.